The Gazette 1978

JULY-AUGUST

1

GAZETTE

TAX CHANGES IN THE FINANCE ACT, 1978 WILLIAM O'DEA, LL.M., Barrister-at-Law, Assistant Lecturer in Law, U.C.D.

Company Taxation Small Companies threshold. The threshold in respect of profits earned after January 1st, 1977 is increased as follows:—

The following are the main changes in Tax Law brought about by the Finance Act, 1978: Personal Taxation Personal allowances are increased as follows: 1977/78 Increase 1978/79 Single £645.00 £200 £865.00 Married £1100.00 £630 £1730.00 Widow £735.00 £200 £735.00 Age allowance: Single or widowed £45.00 £35 £80.00 Married £145.00 £35 £180.00 There is no change in the Rates of Tax and there is no increase in the Child Allowance, which remains at the present level of £240.00. Section 2 of the Act amends the provisions which govern the allocation of personal allowances, where a claim is made for separate assessments by husband and wife. The Act provides that the Married Allowance and the Child Allowance (and the benefit of the lower Rates of Tax) are to be divided equally between husband and wife. Up to now the division has been in proportion to their respective incomes. Life Assurance Only half of the premium will now be allowable as a deduction for Tax purposes, whether the Insurance Company is foreign or Irish. Heretofore two-thirds of the premium was allowable where the company was Irish. Retirement Annuities for the Self-Employed The limitation of £2,000.00 per annum on allowable premiums is abolished. The restriction to 15% of relevant earnings remains. The cash limit in respect of an annuity for a spouse or dependent (£650.00) was also abolished but the income limit in this case (8%) also remains. Inflation had made the existing cash limits unrealistic. Benefits in Kind — Cars The provisions of the Finance Act, 1976 which imposed a minimum charge of £300.00 (or 15% of the cost of the car, if more than £300.00) on employees or directors in respect of the benefit in kind arising from the private use of cars provided by employers is repealed with effect from 6th April, 1978. Benefits in kind on cars for 1978/79 and subsequent years will be computed on the pre-1976 basis. Allowable Interest Surprisingly, perhaps, the allowable Interest limit of £2,000.00 is not changed in the Finance Act. There is one modification of the present position, however. Section 7 of the Finance Act provides that unrestricted Interest will be allowed to individuals acquiring shares in a private trading company. This will apply even where the 5% shareholding requirement is absent and where the individual is only employed on a part-time basis.

Rate of Corporation Tax Previous profit limit New Profit Limit

35% Varying 35%/45% Up to £10,000, £10.000/£ 15,000 Up to £25,000, £25,000/£35,000

Manufacturing Relief A 25% rate of Corporation Tax was introduced in the 1977 Finance Act for manufacturing companies on a three year basis, where certain employment and production targets were met. The only target to be met for 1978 and 1979 is the employment target of 3% per annum (S19FA. 1978). However, Section 27 of the Finance Act 1978 provides that the normal Tax credit applicable to a distribution made on or after 6th April, 1978 will be 30/70ths instead of 35/65ths of the distribution. It has been argued that this charge will render the reduction in the rate of Corparation Tax in the 1977 Finance Act (from 50% to 45%) (and the new generous reliefs for small companies) nugatory because it will increase the tax payable by shareholders in respect of distributions from companies. Capital Allowances The 100% Free Depreciation allowance for new plant and machinery which was due to expire on 31 March, 1979, is continued on a permanent basis. Capital allowances on new industrial buildings are increased from 50% to 100% in respect of expenditure incurred after 1 February, 1978. Section 25 of the Act provides that where a taxpayer (for the purposes of his trade) makes a contribution to a local authority on a scheme of effluent control, the taxpayer will be entitled to allowances for that contribution as if he had spent the money himself. The effluent control scheme is one which must be approved by the Minister for the Environment. Stocks Releif Section 26 provides that stock relief is to continue for one more year. It has been argued that because of the fall in the inflation rate it would cost very little to extend this relief to all forms of activity. There is no indication that this might be done. In fact, stock relief will automatically lapse at the end of the 1978/79 financial year unless it is specifically continued in next year's Finance Act. Farming Profits The farming tax section of the 1978 Finance Act contains amendments of the existing scheme for taxing farming profits. The main alterations are concerned with:— (a) The reduction of the threshold for liability to income tax from £75 to £60 p.l.v. (b) The giving of a credit for rates against income tax. (c) Continuation of the national basis of assessment with the multiplier increased to 90.

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